1. Field of the Invention
The present invention relates to methods for pricing products in a marketplace and, in particular, to a method implemented by a computer for pricing products based on pricing information gathered from the marketplace.
2. Background of the Invention
When making price decisions, it is important to consider market price sensitivity. If sensitivity is high, greater care must be exercised; it is often necessary to price closer to “market.” However, market price sensitivity is not easy to measure; its application has heretofore been limited especially in situations where there are a large number, or diversity, of products to be priced.
Automobile service parts are a case in point. An automaker must make discrete decisions about hundreds of thousands of part numbers. In order to make such pricing decisions a manageable task, broad generalizations are often made. In this regard, one popular pricing method is “cost plus,” that is, the cost of a product, plus a certain percentage. One drawback to such a method is that it does not predict how the pricing of a particular product, or a particular line of products, is positioned in the marketplace. Thus, the product may be priced way too high, in which case, sales volumes will likely be reduced or the product may be priced way too low, in which case, the manufacturer could probably have made a higher margin on the product.